Gold end below $800, down more than 8% for week

Silver loses more than 16% for week, to stand at lowest level in nearly a year

PolyaLesova

SAN FRANCISCO (MarketWatch) -- Gold futures tumbled Friday to close below $800 an ounce for the first time this year, as strength in the U.S. dollar prompted a weekly loss in gold prices of more than 8%.

Silver futures dropped 9.9% for the day and lost 16.4% for the week.

Gold for December delivery closed at $792.10 an ounce on the New York Mercantile Exchange, down $22.40, or 2.8%, for the session. It touched a low of $784 and it's down 8.4% from last Friday's close.

On a historical basis, gold futures haven't traded at levels this low since December, but the contract was at its weakest intraday level since October. Read related MarketWatch First Take.

The decline in gold set prices for other metals reeling, particularly silver, which fell more than $1 for the session.

"The bloodbath in the precious metals arena continued ... and the scale and speed of the sell-off has surprised even the very bearish," said Mark O'Byrne, executive director of Gold and Silver Investments Ltd.

On Thursday, gold futures fell $17, or 2%, to close at $814.50 an ounce.

The U.S. dollar and crude oil "precipitated the stampede for the exit door among funds to the point of crushing any bystanders," said Jon Nadler, senior analyst at Kitco Bullion Dealers.

The market has been questioning gold's resilience lately. Some predict that the metal's safe-haven attribute may give it the edge it needs to break free from the broader decline in commodities. See Commodities Corner.

Dollar, copper gain

The dollar's rally extended to a six-month high on Friday as traders continued to react to data showing the economies of five of the Group of Seven industrialized nations contracted during the second quarter.

The dollar index
DXY, -0.09%
which measures the greenback against a basket of currencies, rose to 77.16 from 76.65 in North American trading late Thursday. See Currencies.

"The market believes that the strength of the dollar is being engineered by the G7 [Group of Seven] central banks, because the interest rate differentials favor the euro as well as the oil price ensuring still that the trade deficit continues to bleed the U.S Balance of Payments," said Julian Phillips, an analyst at GoldForecaster.com.

"This almost straight line move by speculators exacerbates the volatility of the market in precious metals and now in the dollar," he said in emailed comments. "It seems too good to be true and in the past, when such intervention is seen, it almost always ended badly, so we expect considerable volatility in the currency markets as well as the precious metals and it could well be both ways."

Somewhat upbeat economic data helped support the greenback Friday. The Federal Reserve reported that the output of U.S. factories rose 0.4% in July, the best gain in 10 months. See Economic Report.

Separately, the New York Federal Reserve Bank reported that manufacturers in New York state said business improved slightly in early August. The Empire state index rose to 2.8 in August from negative 4.9 in July.

Copper was the lone gainer among the metals on news of the stronger U.S. industrial output, though the climb was capped by losses in the other metals.

September copper tacked on 1.8 cents to close at $3.3225 a pound. It's down 0.3% for the week.

Silver dulls

Other metals followed gold lower -- particularly silver.

September silver dropped $1.415, or 9.9%, to close at $12.815 an ounce on Nymex. It touched a low of $12.20 on Globex, the lowest level since August 2007.

"As the long shadow of gold, silver always follows it in its direction," said Phillips.

But silver "falls further and rises higher so it has fallen around 40% from its high of this year compared to around 25% for gold because of the shape of the market and the lower cost of silver per ounce," he explained in emailed comments.

But "should the dollar be allowed to fall, we have no doubt that silver will outperform gold on the way up -- to a similar extent," he said.

October platinum also fell $100.90, or 6.8%, to close at $1,388.20 an ounce, down 11% for the week. September palladium fell $23.20, or 7.5%, to end at $284.80 an ounce, down 13.9% for the week.

Coin and bullion demand

The gold market has been taking a closer look at investor demand for gold coins in light of the lower prices for the precious metals.

The U.S. Mint has seen such an increased investor demand for the one-ounce Gold American Eagles and the one-ounce Gold American Buffalos that it has "halted sales due to lack of inventory," said David Beahm, a vice president at precious metals retailer Blanchard & Co.

So far, "the physical demand from U.S. investors has not had a huge impact on the price of gold, however, this is about where we saw the market bottom last year, in terms of timeframe, and then it was on to $1,000," Beahm said in emailed comments.

But Kitco's Nadler, based in Montreal, said Kitco currently has U.S. Gold Eagle coins, Gold Maple Leaf and Austrian Philharmonic coins available.

"The only items we are out of stock [although we are accepting orders and fixing today's price for later delivery] are Silver Eagles and Palladium Maple Leaf coins," he said.

For the gold coins, "this is about production problems, not about some 1980s-style public stampede into metals," Nadler said.

Broad sell-off

Meanwhile, the declines in other commodities seemed to fuel each other's descent.

"Energy, grains, and precious metals have all joined the sell-off, with gold crashing through the $800 level," wrote Edward Meir, an analyst at MF Global, in a note.

"Not surprisingly, the dollar is stronger and weighing on the commodity complex at large," Meir said. "With the rest of the world now joining the U.S. in slowing down, the prospects for holding the dollar have brightened considerably."

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